Import-export rotation

Our country has a good recollection of last year’s gas crisis, when Yulia Tymoshenko’s government instituted additional privileges for oil importers. No one has cancelled them since then, nor does it seem that anyone is going to in the near future.

This has angered people in the Ukrainian oil industry, particularly oil refineries (NPZ) that are campaigning for the cancellation of duty-free gasoline and diesel fuel imports. The reasons are understandable: such a concessionary policy gives importers a considerable edge on the Ukrainian market while making domestic production noncompetitive. First Deputy Minister of the Economy Serhii Romaniuk told journalists that duty- free imports of oil products will not be canceled.

“Today the market is in a balanced state. If we institute an import duty, it may have a negative effect on the market.” As for refineries’ complaints that the state is not taking care of domestic oil production, Romaniuk reminded his listeners that the memorandum signed by the Ukrainian government and oil producers and suppliers envisages the creation of conditions to enhance the investment climate with respect to oil refineries. To this end two special commissions were created, one headed by Deputy Prime Minister Andrii Kliuiev and the other, by Prime Minister Viktor Yanukovych. These commissions will deal with investments.

Romaniuk also said that “in the next three to four years all the government’s efforts will be aimed at raising the oil-processing level at our refineries.” He added, however, that the government will also work toward diversifying oil supplies to Ukraine. The deputy minister also considers it expedient to create a strategic oil products reserve, using the example of EU countries whose 90-day reserves allows them to monitor and adjust domestic market prices.

While the issue of duty-free imports of oil products is being debated in Ukraine, Russia continues to restrict Ukrainian commodities, although Romaniuk says that these restrictions will be lifted before long. “Russia’s ban on Ukrainian products will be canceled.”

Romaniuk did not neglect the issue of grain export quotas, announcing that for the time being the Cabinet of Ministers is not going to institute any export quotas. “There are no restrictions on foreign trade operations involving grain,” he explained, adding that this method of domestic market protection should be applied only in emergencies — “extreme conditions,” as he put it. He also stressed that “everything depends on the stability of the grain market and grain export dynamics during the next several months.”

Right now, no “extreme conditions” have been recorded. The Ministry of Agrarian Policy predicts that wheat harvest yields will reach some 12 million tons, including 6.5 million tons of bread grain. Romaniuk gave his assurances that Ukraine will have enough grain until the next harvest. Ukrainians have nothing to worry about; there will be enough bread.

True, there is a certain risk that the grain situation will be destabilized if grain traders are lured into grabbing a slice of the tasty foreign cake; there is a grain shortage outside grain-producing Ukraine, which means higher prices and a green light for grain exporters. It is important for grain traders not to overdo their exports. In order to keep track of their endeavors, the economy ministry has established a special commission tasked with monitoring grain exports to Europe and maintaining a balance in the state reserve.

Another important issue was brought up, namely the resumption of tax benefits for business entities in free economic zones and priority development territories. Romaniuk explained to journalists that such concessions will very likely be restored in the 2007 budget program, not by changes to the 2006 budget. “In view of the fact that we cannot change tax laws during the budget year, I think this will happen in 2007.”

The deputy minister also assured journalists that appropriate changes will be introduced in next year’s budget, although he could not specify their scope and what business entities they would affect. Apparently, the economy ministry is continuing to implement the policy of restoring benefits for business entities in free economic zones, while the finance ministry is opposing it. In July the finance ministry declared that it does not support the proposals concerning the 2007 budgetary policy guidelines, which were approved by the Parliamentary Budget Committee, especially those dealing with the resumption of tax concessions for special economic zones.

The explanation is simple. Restoring tax benefits will lead straight to a loss of revenue. Estimates show that such losses would total some 12 and a half billion hryvnias. As usual, a number of social programs would be the first to suffer.